VIS Revises Ratings of Daharki Sugar Mills (Private) Limited

March 14, 2019

Karachi, March 13, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has revised the entity ratings of Daharki Sugar Mills (Pvt.) Limited (DSML) from ‘A/A-2’ (Single A /A-Two) to A-/A-2 (Single A-Minus/ A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality with adequate protection factors. Moreover, the risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamental and liquidity factors. Outlook on the assigned ratings has been revised is ‘Stable’. The previous rating action was announced on October 31, 2017.

Ratings assigned to DSML take into account its association with JDW Sugar Mills Limited (JDWSML), the largest sugar manufacturer in the country with the highest installed sugar crushing capacity. Being a wholly owned subsidiary of JDWSML, the company draws various benefits from its parent including operational integration. However, carryover sugar inventories in the industry are keeping the demand and prices under pressure leading to a timeline weakening of financial risk profile of the company despite recovery gains. The sizeable decline in sales and margins adversely impacted cash coverages and funds flow from operations with respect to debt obligations.

Weakening in demand and prices led to higher sugar inventory, an industry wide phenomenon, demanding higher short-term borrowings. Gearing and leverage indicators thus witnessed an increasing trend. Management efforts to mitigate the impact of weak demand are ongoing and would be observed over timeline. Going forward, a reduction in stocks and a corresponding decrease in leverage is desirable to support the financial risk profile, strengthening of which may have an impact on the assigned ratings.